Why Trump Should Not Terminate NAFTA

Free trade, doesn't the sound of those 2 words spark patriotism in the hearts of American's, and remind people of the benefits that come directly from it, like higher quality products, a higher quality of life, lower prices, and an overall more free society? Well, apparently it doesn't when it comes to our president. Recently, President Donald Trump has once again come out and discussed the possibility of leaving NAFTA (North American Free Trade Agreement) if certain negotiation demands are not met, as the US, Mexico, and Canada enter the final stages of renegotiation of the deal. Based off of President Trump's numerous comments on the effects of NAFTA, like when he called it the “worst trade deal in the history of the world," talks of possible termination of NAFTA are not really a surprise to anyone now. But, the question at hand still remains: is leaving NAFTA really a good idea for anyone?

Canada and Mexico both rely on the US for large parts of their economy, and the US lies directly in between the 2 nations, meaning that US withdrawal will severely hurt their imports and exports. It cannot be denied that NAFTA has had positive impacts on the US economy, and it has allowed for much better relations between giant neighboring countries. The possibility of withdrawal will certainly anger and hurt our neighboring countries, hurt politically relations with Canada and Mexico, and it will hurt US imports and exports, as Canada and Mexico both hold significant shares of both. Today, I will explain in depth some details about public opinion on NAFTA, the benefits of NAFTA, and common misconceptions about the trade agreement.

History of NAFTA

The story all begins with former President Ronald Reagan in 1984. At this time, Congress had just granted the President the power to change negotiation agreements, as to eliminate the burden of congressional oversight on minor details. When this was done (via the Trade and Tariff Act), Reagan and then Canadian Prime Minister Brian Mulroney had trade agreement plans laid out and agreed to by the US and Canada, which would later be merged into NAFTA. From 1984-1994 trade between the US, Canada, and Mexico was easing up as trade negotiations could be changed by the US more easily now.

Before NAFTA had been agreed too, Mexican tariffs on US imports were a staggering 250% more than US tariffs on Mexican imports, leading former President George H. W. Bush to push for more free trade between the countries. The decade leading up to NAFTA showed numerous examples of Mexico, Canada, and the US working to ease trade restrictions between each other. Then finally in 1994, NAFTA had been approved by all 3 nations legislatures with the intent to make North American trade more fluid, increase investments, and to create fair grounded competition.

Public Opinion of NAFTA

The popularity of NAFTA remains very different among the 3 nations involved in the agreement, but in every country, NAFTA remains favorable with more people than with those who find it unfavorable. In a poll taken by the American Enterprise Institute, it was found that from 1997-2008, an average of 42% of respondents thought NAFTA was a good thing, and 35% thought of it as a bad thing. This same poll also found that from 1997-2003 ~60% of people agreed with free trade agreements with other countries. A Pew Research poll done in 2017 found that while only 51% of Americans thought that NAFTA was a good thing for their country, 60% of Mexicans thought it was, and 71% of Canadians felt the same. And while 51% may only seem like a slight majority, 39% of Americans thought it was a bad thing, leaving a percentage gap of 12%.

Another Pew Research poll, done in 2015, found that 58% of Americans said that free trade agreements are a good thing for the US. One important thing that should be accounted for is the large numbers of respondents who gave neither a positive or negative response, either due to lack of understanding or indecisiveness in all polls. A poll done by Gallup found that 72% of Americans see foreign trade as an opportunity rather than a threat. Even if American support for NAFTA may be shaky (which is important due to America being the most important country in the deal), public opinion from other countries is relatively high, and agreement with free and foreign trade, even in America, is very high.

Now, while support from the public (at least in America) is somewhat divided, agreement among economists is uniform. A poll done by the Initiative on Global Markets Forum (IGM) surveyed 37 economists, and they were posed with the proposition, “On average, citizens of the U.S. have been better off with the North American Free Trade Agreement than they would have been if the trade rules for the U.S., Canada and Mexico prior to NAFTA had remained in place.” 98% agreed with 31% strongly agreeing, 2% were uncertain, and none disagreed. Let me repeat that, NONE of the economists disagreed that we are now better off with NAFTA than if we hadn’t had it (Note: This accounts for respondents confidence). Economist Sarah Johnson called NAFTA “...an overwhelming success. There are strong, two-way trade flows now.”

Economist Larry Summers had this to say about the deal: "I think the decision to support NAFTA was a crucial one because it was really a watershed as to whether America was going to stand for larger markets, was going to stand for forward defense of our interests by trying to have a more integrated global economy [in] which countries were growing. So [a] watershed in our relations with Mexico and establishing a real partnership with a country with whom we had a 2,000-mile border. I think it resulted in a profound change in the internal political dynamics in Mexico in favor of the progressive forces that believed in the market and friendship with the United States as opposed to the forces that believed more in socialism and opposition to the United States. And NAFTA didn't cost the United States a penny. It contributed to the strength of our economy both because of more exports and because imports helped to reduce inflation. It didn't cost the budget anything. It was a very worthwhile investment for our country." 

The support for NAFTA by praised and highly educated economists is very clearly in the affirmative.

Benefits of NAFTA

Aside from the political nightmare that would ensue if America were to leave NAFTA, the economic benefits that came from NAFTA would also be lost, so let's see what NAFTA has provided for the 3 North American powerhouses (Sources: TheBalance, CFR, and NPR):

• It eliminated all tariffs and many restrictions between the 3 countries, giving businesses more freedom, lessening governmental control on trade, and gave way to an influx of foreign investment.

• From 1993-2015, trade between the 3 countries increased from 297 billion to 1.15 trillion, roughly quadrupling it. This resulted in America increasing its exports from 142 billion to 517 billion.

• It helped reduce America’s oil dependence from countries like Venezuela and Iran, and it also reduced the prices of oil, vegetables, chocolate, fruits, and beef.

• It is estimated that NAFTA helped boost economic growth by as much as 0.5% a year.

• Farm exports, automotive exports, and service exports all greatly increased for America as a result of NAFTA, and it helped keep outsourced jobs, imports, and exports secluded to North America.

• The reduced regulations and proximity costs helped create higher paying US jobs, and it prevented jobs from being outsourced to China. The outsourcing of manufacturing also helps America move past this outdated sector and move into more modern/service oriented jobs.

• NAFTA helped better secure intellectual property rights

• Foreign Direct Investment more than tripled since NAFTA’s initiation

• Average wages and hourly earnings increased as a result for most jobs

• “... fourteen million jobs rely on trade with Canada and Mexico, while the nearly two hundred thousand export-related jobs created annually by the pact pay 15 to 20 percent more on average than the jobs that were lost.”

• “A 2014 PIIE study of NAFTA’s effects found that about 15,000 jobs on net are lost each year due to the pact—but that for each of those jobs lost, the economy gains roughly $450,000 in the form of higher productivity and lower consumer prices.”

• NAFTA helped American automotive companies compete with China and prevent even more jobs being lost to China

• It helped push Mexican companies to become more efficient, and it helped Mexico become more stable and develop, benefiting American consumers

• “NAFTA helped the U.S. auto industry survive,” says Gordon Hanson, economist and acting dean at the School of Global Policy and Strategy at University of California. “The U.S. auto industry designed a very efficient production network that spanned the U.S., Mexico and Canada.”

This list gives a very detailed description of the benefits of NAFTA, and shows that even with the negatives that may have come, they do not outweigh all the good NAFTA has done. NAFTA has allowed 3 countries to essentially integrate and work as 1 to compete with the rest of the globalizing world. Without NAFTA, the US would be having a much harder time competing with the EU and China as they work to dominate US economic influence. The negatives that would have inevitably come from Asian globalization are being countered and reduced by NAFTA while also lowering consumer costs, guiding the US economies move away from low wage manufacturing jobs, helping Mexico massively increase its employment and productivity as a result of higher wages, and politically uniting 3 massive countries. One cannot deny that NAFTA uniting the 3 countries politically is a positive, as better relations comes with perks between nations, and usually guarantee of defense.

Common Criticisms of NAFTA

Claim: NAFTA is allowing Mexico to steal American manufacturing jobs, thus hurting the economy.

Truth: The claim of the loss of jobs as a result of NAFTA is opponents most used argument, but it is just outright irrelevant. 80% of the jobs lost as a result of NAFTA were in manufacturing, jobs that are usually low paying and usually require a lower set of skills. These types of jobs are better for developing economies such as Mexico. The real job "thieves" are countries like China, taking roughly 2.7 million US manufacturing jobs from 2001-2011, as estimated by the Economic Policy Institute. This is not to attack free trade deals with China, but simply to say that NAFTA was not the sole, or even largest, cause of lost US manufacturing jobs. Not only that, but a study done by economists Michael Hicks and Srikant Devaraj found that only 13% of US manufacturing jobs lost can be attributed to trade, while 88% can be attributed to increased automation.

A report done by the United States International Trade Commission (USITC) stated the following: “ NAFTA has had a larger economic impact on the United States than any of the subsequent U.S. trade agreements implemented. [...] NAFTA led to a substantial increase in trade volumes for all three countries; [...] and little to no change in U.S. aggregate employment, but noticeable changes in wages at the state level in the footwear, textiles, and plastics industries."

Another report done by the Organization for Economic Cooperation and Development found that: “The net employment effects were relatively small…” The most common number for lost US jobs due to NAFTA is ~700,000 over more than 2 decades. This is hardly anything in the US economy, where over 150 million people are employed. Mexico buys a lot of US exports, and when they increase their employment and wages, they buy more US goods and services, leading to an increase in profits for US companies and thus more US jobs. Something worth noting is that from 1994-2017, unemployment has dropped from 6.6% to 4.4%, a net decrease of 2.2%, from 1979-2008 the US lost ~7 million manufacturing jobs, but netted 53 million jobs since, and the US had been losing manufacturing jobs at the same rate since the initiation of NAFTA.

Claim: US wages are being lowered due to union power being undermined by factory threats of moving production to Mexico.

Truth: Even if this claim were true, the effects of said wages would be solely limited to manufacturing jobs and other very limited sectors of the economy. The same USITC study mentioned earlier found: “essentially no effect on real wages in the United States of either skilled or unskilled workers.” and the National Bureau of Economic Research found that as a result of NAFTA, “real wages increased for all NAFTA members and Mexico had the largest gains.” As trade restrictions were eliminated by NAFTA making more trade desirable for Canada and Mexico, they have shared their gains with the US, even from their new jobs from the US. As economist Gordon Hanson said: “...what goes into making an automobile. There’s design, there’s marketing, there’s brand development that provide great jobs for U.S. workers. We’ve kept those jobs in the U.S. instead of seeing them relocate to Japan or to Shanghai because of the ability to share production with a lower-wage country like Mexico.” These better paying jobs are what Americans want, and when we lower trade restrictions, we can increase the trade involved in making products that require these jobs, therefore increasing the need for employees in America to do the aforementioned jobs.

Claim: NAFTA has resulted in environmental harm, most notably in Mexico.

Truth: This claim is actually accurate. Environmental harm can come without proper restrictions, and this is why Mexico has run across these problems. Mexico is an underdeveloped and poor country, and one way to enrich itself is to utilize its natural resources. One major reason for Mexico’s environmental problems is their lack of ability to compete with US subsidized farms, resulting in Mexican farmers going out of business resulting in cutting down forests and trees in mass to make room for crops for competition. I and many others disagree with the US government heavily subsidizing farmers and muffling a lot of farmers who attempt to compete with subsidized farms. Eliminating these subsidies would help increase competitiveness in the agricultural sector in America, and it would be more fair to Mexican farmers to compete in an unsubsidized market. This is claim is still, however, weak at best and is something that can be addressed independent of NAFTA.

Claim: NAFTA has lead to US companies exploiting Mexican workers near the border.

Truth: This claim, like most others, is something that has happened and would have happened with or without NAFTA. The issue of mistreatment of workers is something that should be dealt with by the labor rights laws, and is not something new that resulted because of NAFTA. Poorer working conditions are very common in underdeveloped nations, and they improve with the growth of the country economically and politically. Labor standards have always been a problem addressed by each individual nation, and is not the job of trade agreements. Collective bargaining is all but non-existent in Mexico, as corrupt union leaders hoard union benefits, and Mexican bureaucrats poorly enforce labor standards, which are some of the main causes of their low wages and poor treatment.

Conclusion

These claims I just reviewed are the most commonly cited and stated points in debates about the effects of NAFTA, but every data point, every piece of evidence is against the opponents claims. Even the small legitimate claims against NAFTA are drowned by the tidal wave of benefits provided by NAFTA. Any real issues that are found can either be attributed to previous trends before NAFTA or to misconceived data. Leaving this trade agreement will hurt US credibility with the world economy, and it will isolate us from our neighbors politically. While President Trump may see NAFTA as the “worst trade deal in history”, no respectable person can say that it has done more harm than good. If there are any arguments against the legitimacy of NAFTA, I encourage you to go out and seek them, but until they are found, there really is no proof to support withdrawal from NAFTA.